The Top Credit Score Myths, Debunked.

This blog post will dispel common myths and misconceptions about credit scores.

It will discuss myths such as checking one's credit score will lower it or that closing a credit card will improve it.

The post will provide accurate information and explanations for how these myths came about and what the truth actually is.

I. Introduction

Credit scores play a crucial role in our financial lives. They can determine whether we can get approved for loans, credit cards, or mortgages, as well as the interest rates and terms we're offered. Despite their importance, credit scores are often misunderstood and surrounded by myths and misconceptions.

In this blog post, we'll debunk the top credit score myths and provide accurate information to help you better understand how credit scores work. We'll cover common myths such as checking your credit score will lower it and that closing a credit card will improve it. By dispelling these myths, we hope to empower you to take control of your credit and improve your financial well-being.

But before we dive into the myths, let's take a moment to understand how credit scores work. Your credit score is a three-digit number that reflects your creditworthiness. It's calculated based on several factors, including your payment history, credit utilization, length of credit history, types of credit, and new credit inquiries. These factors are analysed by credit scoring models, such as FICO or VantageScore, which produce a credit score ranging from 300 to 850.

The higher your credit score, the more creditworthy you appear to lenders, and the better your chances of getting approved for loans or credit cards with favourable terms. A low credit score, on the other hand, can make it difficult to get approved for credit or result in higher interest rates and fees.

Now that we've covered the basics of credit scores, let's dive into the top credit score myths and debunk them one by one.

II. Myth #1: Checking Your Credit Score Will Lower It

One of the most common credit score myths is that checking your credit score will lower it. This myth likely originated from a misunderstanding of the difference between a hard inquiry and a soft inquiry.

A hard inquiry occurs when a lender checks your credit report as part of the loan or credit card application process. Hard inquiries can lower your credit score by a few points, but only temporarily. However, when you check your own credit score, it's considered a soft inquiry, which does not impact your credit score.

In fact, checking your credit score regularly is a good habit to develop. It allows you to monitor your credit and catch any errors or fraudulent activity early on. Additionally, reviewing your credit score can help you identify areas for improvement and take steps to improve your credit over time.

Myth #2: Closing a Credit Card Will Improve Your Credit Score

Another common myth is that closing a credit card will improve your credit score. However, closing a credit card can actually have the opposite effect.

Credit utilization, or the percentage of your available credit that you're currently using, is an important factor in calculating your credit score. When you close a credit card, you reduce your available credit, which can increase your credit utilization and potentially lower your credit score.

Additionally, closing a credit card can shorten your credit history, which is another factor in calculating your credit score. A longer credit history generally reflects positively on your creditworthiness, so closing a credit card account can negatively impact this aspect of your credit score as well.

Myth #3: Carrying a Balance Helps Your Credit Score

Contrary to popular belief, carrying a balance on your credit card does not help your credit score. In fact, it can actually harm it.

Carrying a balance means you're accruing interest on your credit card debt, which can make it difficult to pay off your balance in full and on time. This can lead to missed or late payments, which can have a significant negative impact on your credit score.

Additionally, credit utilization is another important factor in calculating your credit score. Carrying a balance can increase your credit utilization, which can lower your credit score. It's always a good idea to pay your credit card balances in full and on time to avoid interest charges and maintain a healthy credit score.

Myth #4: Paying Off Collections Will Immediately Improve Your Credit Score

If you have a collection account on your credit report, you may be tempted to pay it off in order to improve your credit score. While paying off a collection account is a good step to take, it may not immediately improve your credit score.

Collection accounts typically stay on your credit report for seven years, even after they've been paid off. However, some newer credit scoring models, such as FICO 9 and VantageScore 4.0, do not factor paid collections into their calculations. This means that paying off a collection account may not improve your score under these newer models.

It's important to note that even if paying off a collection account doesn't immediately improve your credit score, it can still have a positive impact on your creditworthiness over time. It shows lenders that you're taking responsibility for your debts and can help you get approved for credit in the future.

Myth #5: Having No Credit History Is Better Than Having Bad Credit

Finally, some people believe that having no credit history is better than having bad credit. While it's true that having no credit history can't hurt your credit score, it also can't help it.

Without a credit history, lenders may be hesitant to approve you for credit, as they have no way to gauge your creditworthiness. It's important to establish credit by opening and using credit cards or taking out loans, even if you don't have a long credit history or have had credit issues in the past. This can help you build a positive credit history over time, which can improve your creditworthiness and make it easier to get approved for credit in the future.

It's important to remember that building a good credit score takes time and effort. There are no quick fixes or shortcuts to improving your credit score. By understanding the facts behind these common credit score myths, you can take steps to build and maintain a healthy credit score over time.

III. How to Improve Your Credit Score

Now that we've debunked some of the most common credit score myths, let's explore some concrete steps you can take to improve your credit score.

A. Check Your Credit Report Regularly

As we mentioned earlier, checking your credit report regularly is an important step in maintaining a healthy credit score. You can request a free copy of your credit report once a year from each of the three major credit bureaus: Equifax, Experian, and TransUnion.

Review your credit report carefully to make sure there are no errors or fraudulent activity. If you do spot an error, report it to the credit bureau as soon as possible to have it corrected.

B. Pay Your Bills on Time

One of the most important factors in calculating your credit score is your payment history. Late or missed payments can have a significant negative impact on your credit score. To avoid this, be sure to pay your bills on time, every time.

If you're having trouble making your payments, contact your creditors to see if they offer any hardship programs or payment plans. These can help you get back on track and avoid damaging your credit score further.

C. Reduce Your Credit Utilization

As we mentioned earlier, credit utilization is the percentage of your available credit that you're currently using. High credit utilization can have a negative impact on your credit score.

To reduce your credit utilization, try to pay down your balances as much as possible. You can also ask your credit card issuer for a credit limit increase, which can help reduce your credit utilization ratio.

D. Keep Your Credit Accounts Open

As we also mentioned earlier, closing a credit card account can have a negative impact on your credit score. To maintain a healthy credit score, try to keep your credit accounts open, even if you're not using them.

If you do need to close a credit account, consider closing one with a lower credit limit instead of one with a higher credit limit. This can help minimize the impact on your credit utilization.

E. Apply for New Credit Sparingly

Finally, be careful when applying for new credit. Each time you apply for credit, it results in a hard inquiry on your credit report, which can lower your credit score.

Try to limit your credit applications to only those you really need and space them out over time. Additionally, be sure to research the credit products you're applying for and only apply for ones that you're likely to be approved for based on your creditworthiness.

IV. Conclusion

In conclusion, credit scores can be confusing, and there are many myths and misconceptions surrounding them. By understanding the facts behind these myths, you can take steps to improve your credit score and maintain a healthy credit history.

Remember to check your credit report regularly, pay your bills on time, keep your credit utilization low, and apply for new credit sparingly. With time and effort, you can build a strong credit score that will help you achieve your financial goals.

Thank you for taking the time to read our blog post on the top credit score myths. We hope you found this information helpful and informative. Remember, by understanding the truth behind these common credit score myths, you can make better decisions when it comes to managing your credit and finances.

If you enjoyed this post, be sure to subscribe to our newsletter for more helpful tips and insights on personal finance. Thanks again for reading, and we wish you all the best on your financial journey.

Thanks a Million,

Moolah.